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U.S. will not give Exxon permission to drill in Russia

[April 22, 2017] By Yeganeh Torbati and Ernest Scheyder

WASHINGTON/SPRING, Tx. (Reuters) - The United States will not make an exception for American companies, including oil major Exxon Mobil Corp, seeking to drill in areas prohibited by U.S. sanctions on Russia, Treasury Secretary Steven Mnuchin said on Friday.

The unusually direct statement served to clarify that the United States would maintain a tough stance on sanctions against Moscow.

"In consultation with President Donald J. Trump, the Treasury Department will not be issuing waivers to U.S. companies, including Exxon, authorizing drilling prohibited by current Russian sanctions," Mnuchin said in a statement.

The United States and European Union imposed economic sanctions on Russia over its annexation of the Crimea region in 2014 and its role in the conflict in eastern Ukraine. The sanctions forced Exxon, the world's largest publicly traded oil producer, to wind down drilling in Russia's Arctic in 2014.

"We understand the statement today by Secretary Mnuchin in consultation with President Trump," Exxon spokesman Alan Jeffers said.

Exxon had asked for and received in 2015 and 2016 waivers to operate a joint venture with Russian oil producer Rosneft in Russia. European Union sanctions do not keep European oil companies from operating in Russia, a point of annoyance for Exxon.

The Wall Street Journal reported this week that Exxon had in recent months applied for a Treasury Department waiver to drill with Rosneft. Jeffers said Exxon had not applied for waivers from Treasury since Trump took office.

Any such request would have drawn attention because Exxon's former chief executive, Rex Tillerson, is now U.S. secretary of state. Under his leadership, Exxon lobbied Congress on Russia sanctions, and Tillerson opposed sanctions against Russia in 2014, saying they would be ineffective.

U.S. lawmakers are investigating possible ties between some Trump campaign aides and Moscow. Republicans in Congress as well as U.S. allies in Europe are anxious about any sign that the Trump administration might ease some of the sanctions imposed on Russia.

During his confirmation hearing in January, Tillerson said he never personally lobbied against sanctions and that he was not aware of Exxon Mobil directly doing so, later acknowledging that he spoke to former U.S. Treasury Secretary Jack Lew regarding gaps between American and European sanctions on Russia.

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Logos of ExxonMobil are seen in its booth at Gastech, the world's biggest expo for the gas industry, in Chiba, Japan April 4, 2017. REUTERS/Toru Hanai

Tillerson has pledged to recuse himself until the end of this year from any matter involving Exxon Mobil unless he is authorized to participate. He also has until early May to sell his Exxon Mobil stock.

SANCTIONS CLARITY

U.S. companies frequently file license applications to the Treasury Department asking permission to undertake activities that would otherwise be barred by sanctions. The U.S. government weighs each application based on national security interests, the law and other factors.

The refusal is unlikely to affect Exxon Mobil's bottom line, as it has not been able to operate in Russia for several years, but it does hinder its growth potential.

Treasury almost never comments publicly on license applications. Mnuchin's statement will likely serve to clarify the U.S. stance on sanctions against Russia at a time when American allies are looking for clues to U.S. policy, observers said.

"It's good from a regulatory perspective as it provides clarity to U.S. companies, but it's also great from a foreign policy perspective," Edward Fishman, a fellow at the Atlantic Council think tank and former State Department official during the Obama administration, said of Mnuchin's statement. "Any uncertainty about the future of sanctions scares our allies and encourages Russia to prolong its aggression in Ukraine."

(Reporting by Yeganeh Torbati and Ernest Scheyder; editing by Andrew Hay and Alistair Bell)

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